Table III CORPORATIONS & LICENSE TAXES HOW TEXAS COMPARES TO THE Rank Corp. Licen. Rank in Rank in taxes Corp. in Corp. Corp. per licen. Pop. State Pop. Pop.* Capita Tax 1 Cal. 235,990 2 $ 0.21 50 2 N Y 303,989 1 $ 0.31 49 3 Tex.t 129,623 5 $22.74 2 4 Penn. 98,823 8 $22.51 3 5 111. 119,892 6 $ 3.20 15 6 Ohio 103,700 7 $ 8.96 9 7 Fla. 146,519 3 $ 0.84 36 * New Jersey has the fourth largest corporate population. tTexas is the only one of these seven states without a corporate income tax. \(Table derived from reports by the Advisory Comfirms with fewer than 500 employees created 87% of all net new jobs between 1969 and 1976. 11 N THE 1983 legislature, I will intro duce a series of proposals to address the inequity in our state’s tax burden. These proposals will not increase the overall tax burden, they will merely shift some of the burden away from working families to those able to pay. Basically, my proposals would: increase the mandatory homestead exemption on school taxes from $5,000 of assessed valuation to $25,000; double the elderly/disabled exemption from $10,000 to $20,000; abolish the corporate franchise tax; and, create a progressive corporate profits tax not to exceed 5%. Why a corporate income tax? Because a below-average profits tax would more Table IV PROPERTY V. CORPORATE INCOME: HOW TEXAS TAXES COMPARE TO THE NATIONAL AVERAGE National average per capita state tax revenue: $884.29 Total Texas tax collections per capita: $676.02 Property taxes as a proportion of total tax 0.3141 Property taxes as a proportion of total tax 0.3605 Per capita revenue from corporate income tax in Texas, if taxed at an average statewide rate: $111.88 Average per capita revenue derived from state corporate income taxes: $ 56.99 Current Texas revenue derived from corporate profits taxes: -0- \(Source: Tax Capacity of the Fifty States: Methodology and Estimates. Advisory Commission on Intergovernmental Relations: Washington, D.C., than pay for all the real tax cuts I’ve just outlined. Because the Texas tax structure desperately needs an injection of equity. Because corporate profits in Texas are larger than anywhere in the country. Because the ultra-rich corporate elite have taken a free ride on the backs of Texas taxpayers long enough. Texas has less than 6% of the U.S. population, yet 12% of all corporate income is made in Texas, according to ACIR.12 Because of this fact, an effective rate tax of about 3% would produce over $1 billion or more than the revepeal the franchise tax. This rate would be below those of our bordering states as well as far below the national average. A corporate income tax would be relatively inexpensive to collect. Texas saved about 90% in administrative costs by “piggybacking” inheritance taxes off the federal inheritance tax. We can do the same thing with a corporate income tax. We should even save a few bucks because we won’t have to collect the expensive and burdensome franchise tax any longer. It would be painless for most businesses since they could conceivably enter a few lines off their IRS forms onto a postcard. And IRS already does the random auditing. In addition, a truly progressive profits tax would place most of the burden on out-of-state corporations. Less than one-half of one percent of all corporations operating in Texas control nearly half of all state corporate wealth. Of this tiny ultrarich elite, over 70% are nonTexas firms.” But, a corporate income tax will cause massive unemployment, prevent new businesses from moving here, and create an unhealthy, anti-free enterprise climate, right? Hogwash. Oklahoma has a corporate income tax and has consistently had lower unemployment rates than Texas. Utah has a corporate income tax; Nevada doesn’t; Utah has a lower unemployment rate. In fact, of the nine states that had lower unemployment rates than Texas in 1980, only one doesn’t have a corporate income tax.” Rather than stifling business in Texas, a corporate income tax would inject fairness into the marketplace by taxing those who can afford to pay. With increased homestead exemptions and no franchise tax, the overall tax burden would remain unchanged. And because we could eliminate the franchise tax, fewer businesses would be penalized by this assets/license tax at a time when they may not be making profits, like re locating to Texas or expanding or beginning a new business. Furthermore, I contend that a corporate income tax would not be passed onto consumers, at least not if those corporations wish to remain competitive with businesses in other states which already have a profits tax. Since only four states do not have a profits tax, passing the tax onto consumers would require losing sales or raising prices in-46 states. The majority of tax experts agree that corporate income taxes are paid out of profits rather than consumers’ pockets.” The increased school tax exemptions won’t hurt renters or small businesses, either. That’s because the state would reimburse school districts for the entire lost tax revenue. In addition, a flat $25,000 exemption means that residents in districts with high tax rates would get the biggest tax cuts. An elderly person’s home would be tax-free if valued at less than $45,000. Detractors of a flat $25,000 exemption Texas already spends far more on educaready approved local-option percentage exemptions to allow tax cuts for homeowners. Although Texas does spend proportionally more on education than other states, on a per capita basis Texas still ranks below the national average, 24% below California.” One does not even need to mention that salaries for teachers must be raised dramatically if we are to stem the tide of disgruntled educators tired of living on beans-and-rice pay. As for percentage exemptions, the problem is that most school districts, without a substantial business base, cannot afford to pass these exemptions. And where such exemptions have been passed, the tax burden has simply shifted toward small business and renters. The percentage exemption has strictly been used to reward the wealthy. My staff could not find any poor school districts which utilize this optional exemption. My school district, the Houston ISD, does use a percentage exemption $100,000 homestead is exempt from $414 of tax, while the owner of a $40,000 homestead is exempt from $165.60. If a $25,000 exemption was used instead, both homeowners would be exempt from $258.75. Under my proposals, HISD would still be free to grant their 35% exemptions in addition to the $25,000 exemption. But less tax revenue would be lost because now the state would reimburse HISD for all percentage exemptions up to $25,000. 20 DECEMBER 10, 1982
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